Mike Weston | Interview
Are you working with other pools on investments? We strongly believe in collaboration with other pools. There are several cross-pool collaboration groups. There is a responsi- ble investing sub group and an infrastruc- ture sub group, for example. I meet with my fellow pools’ CEOs and the risk and compliance teams also meet, so there is collaboration going on. We as pools have similar issues across a range of organisational areas, which includes an awful lot more than just investment.
It makes sense for us to share experience and expertise where we can. Ultimately, it is about delivering better outcomes for all LGPS members.
It is something that is going forward and we are happy to be working with other pools.
What is your ESG policy when making investment decisions? We set a policy by developing a robust and detailed responsible investing framework. We put that framework in place before we launched any of our funds. We put that framework together by work- ing with our partner funds and understand- ing their ESG convictions and how they fit into their investment philosophies and principles. How we incorporate financial materiality of ESG into that framework. Getting consistency of how we operate with investment beliefs and policies is impor- tant to us. Having done that, we have a three pillar approach to managing our responsible investment policy: selection, stewardship and transparency. Selection is all about how we integrate ESG into internal investment products and external manager selection.
Stewardship is about monitoring, engage- ment voting policy and influence. Transparency and disclosure is about mak- ing sure that our managers are transparent in disclosing to our partner funds steward- ship reports, full voting records, consulta- tion responses, all of that sort of thing so that everyone knows what we are doing.
Having defined the responsible investing framework, any manager we select has to demonstrate how they would operate within that framework, so we need consist- ency. This is not an optional extra, it is an essential ingredient.
Are your funds free to invest in oil and gas companies? Yes, they are. We and our partner funds have a preference for engagement rather than
exclusion. We prefer engagement
because it is more likely to lead to better societal and fiduciary outcomes rather than divesting.
If you divest you limit your opportunity to diversify risk and you remove your ability to positively influence companies.
What news-flow can we expect to read from LGPS Central in the remainder of 2019?
There will be more fund launches, more staff hires and a continued focus on being a responsible investor.
On fund launches, we are collaborating with a partner funds to put those together. We are mindful that it is the triennial valu- ation of our partner fund schemes. As they work through that process we have to be flexible enough to respond to any changes in strategic asset allocation that might come out of that. We have a fund development process that enables us be flexible and make sure we are providing the products that our clients need.
If you divest you limit your
opportunity to diversify risk and you remove your ability to positively influence companies.
Clearly, you have to make a consideration in all of your investments. What is the financial materially of the ESG elements of a particular investment? How do they come together?
There has to be a fiduciary case and a responsible investment case. A good exam- ple is that we have had engagement success with Royal Dutch Shell’s commitment to decarbonise its business in line with the Paris Agreement on climate change linked to the re-numeration of 1,200 senior managers.
The financial dynamics of investing in Shell were positive but we needed the responsible investing element of that to line up as well. By engaging with them in partnership with other industry groups we managed to achieve progress there. We have to be good stewards of our clients’ capital, we have to be transparent and we have to work on an industry-wide basis. We are very public in our commitment in this area and these policies will carry on.
Cost savings are also a focus. We don’t want to eliminate all other cost savings by building an enormous cost base within Central. So our hiring plans are related to the new funds that we launch so that we have the expertise when we need it. When we launch the infrastructure fund in the summer, we have an infrastructure team in place and are looking to grow that team so that the additional resources are in place when the fund launches. There will also be a continued focus on being a responsible investor. That world is moving quite fast. Climate change is a major issue and we are focused on at the moment.
There is nothing particularly radical about it.
It is doing all of the detailed stuff well and making sure that we are communicating and moving forward as a group with our partner funds and providing the returns they need to pay their pensions over the long term.
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